The m.3243A > G mitochondrial DNA mutation was originally described in patients with mitochondrial encephalomyopathy, lactic acidosis, and stroke-like episodes. The phenotypic spectrum of the m.3243A > G mutation has since expanded to include a spectrum of neuromuscular and ocular manifestations, including reduced vision with retinal degeneration, the underlying mechanism of which remains unclear. We used dermal fibroblasts, from patients with retinal pathology secondary to the m.3243A > G mutation to generate heteroplasmic induced pluripotent stem cell (hiPSC) clones. RPE cells differentiated from these hiPSCs contained morphologically abnormal mitochondria and melanosomes, and exhibited marked functional defects in phagocytosis of photoreceptor outer segments. These findings have striking similarities to the pathological abnormalities reported in RPE cells studied from post-mortem tissues of affected m.3243A > G mutation carriers. Overall, our results indicate that RPE cells carrying the m.3243A > G mutation have a reduced ability to perform the critical physiological function of phagocytosis. Aberrant melanosomal morphology may potentially have consequences on the ability of the cells to perform another important protective function, namely absorption of stray light. Our in vitro cell model could prove a powerful tool to further dissect the complex pathophysiological mechanisms that underlie the tissue specificity of the m.3243A > G mutation, and importantly, allow the future testing of novel therapeutic agents.